Amazon cashed in children's unapproved app purchases, FTC charges

The federal government says Amazon made millions of dollars off purchases by children using the company’s app on mobile devices like the Kindle Fire. The Federal Trade Commission is seeking a court order compelling Amazon to refund consumers for unauthorized purchases. Credit: Associated Press

The FTC announced Thursday it has filed a court order that would require Amazon to refund consumers for the unauthorized charges, which happened via mobile devices such as the Kindle Fire, and to seek permission for in-app purchases in the future.

When Amazon.com Inc. first introduced in-app purchases through the Amazon Appstore in November 2011, it allowed in-app purchases of $0.99 to $99.99 without entering a password. Such purchases could be made in games and other apps that appeal to kids, which resulted in children racking up bills of several hundred dollars for virtual coins, stars and acorns in games without their parents' knowledge. The FTC argues that Amazon violated the FTC Act by billing account holders for charges that they hadn't personally authorized.

Recognizing internally that the unlimited in-app charges without passwords was "clearly causing problems for a large percentage of our customers," according to internal communications, Amazon updated its in-app charge system in March 2012. From then, an account owner was required to enter a password for charges exceeding $20. However, children were still able to make an unlimited number of individual purchases of less than $20 without parental approval, the FTC said.

"It's much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product," an Amazon employee said in internal communications, according to the FTC's complaint.

Internal Amazon communications referred to the problem as a "house on fire."

The FTC argued that children may not have realized they were spending real money because the screen to authorize such real-life purchases looked similar to the screen that allowed them to use virtual coins and acorns earned in the game.

Starting in early 2013, Amazon required account holders to enter a password. However, when a parent entered a password to authorize a single in-app charge made by a child, that single authorization often opened an undisclosed window of 15 minutes to an hour during which the child could make unlimited charges without further authorization, the FTC said.

Thousands of parents complained to Amazon about the unauthorized purchases their kids made.

"One mother noted in the FTC complaint told Amazon that her daughter was able to rack up $358.42 in unauthorized charges, while others complained that even children who could not read were able to 'click a lot of buttons at random' and incur several unauthorized charges," the FTC said.

Amazon's policy states that all in-app charges are final and nonrefundable, according to the FTC. Parents who sought an exception to that policy found the refund process unclear and confusing. They couldn't find an explanation of how to seek refunds for in-app charges.

Amazon vice president and associate general counsel Andrew C. DeVore sent a letter to the FTC on July 1, after seeing a draft of FTC's lawsuit, saying it was "deeply disappointing" that the FTC intended to pursue the case in court, apparently because Amazon refused to agree to similar terms as Apple.

"The commission's unwillingness to depart from the precedent it set with Apple despite our very different facts leaves us no choice but to defend our approach in court," DeVore wrote in the letter, which Amazon shared with the Public Investigator in response to a request for comment Thursday.

"Pursuing litigation against a company whose practices were lawful from the outset and that already meet or exceed the requirements of the Apple consent order makes no sense, and is an unfortunate misallocation of the Commission's resources."

DeVore also took issue with the FTC's accusations that Amazon failed to get consumers' informed consent for the purchases and didn't address consumers' complaints quickly or effectively enough. He said the company did nothing illegal.

"We have continuously improved our experience since launch, but even at launch, when customers told us their kids had made purchases they didn't want, we refunded those purchases," he wrote.

The FTC said Amazon didn't change its in-app charge system to obtain account holders' informed consent for in-app charges on its newer mobile devices until June 2014 — about 2 1/2 years after the problem first surfaced and only shortly before the FTC voted to approve a lawsuit against Amazon.

"Even Amazon's own employees recognized the serious problem its process created," FTC chairwoman Edith Ramirez said in a news release. "We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases."

For the FTC's order to take effect, a federal judge would need to approve it, or Amazon would need to agree to a settlement, like Apple did. In the case of Apple, the company sent out its own notifications to customers about how to get refunds for in-app purchases they felt were in error or unauthorized. No such process or agreement is in place for Amazon.

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